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The Mexican automotive industry is not raising its head. Production in November fell for the fifth consecutive month. The data reflects the persistence of problems with the supply of microchips, which the sector expected to have solved by now. It has not been so. Along with this shortage of materials, Mexico’s energy reform proposal and the government’s threat to retaliate against the United States if it approves incentives for electric cars are pushing the possibility of a speedy recovery from the pandemic away and darkening the future of a key industry. .
It was the worst November for the industry in a decade. Production of 248,960 vehicles fell 20% compared to the same month last year, the National Institute of Statistics and Geography (Inegi) revealed this Monday. The volume is 25% lower than that of February 2020, just before the start of lockdowns due to the pandemic in North America. Some owners have had to go into technical stoppages due to a lack of materials and suffered overwhelming falls, such as 69% of Mercedes Benz or 42% of BMW. Although the reopening boosted the numbers at first, since July the sector has seen annual setbacks.
The data challenges the hopes of the industry, which represents about 4% of GDP and 19% of industrial, according to the Ministry of Economy. In August, the industry expected the microchip shortage to be resolved by the end of 2021 and the president of the AMIA automotive association, José Zozaya, was optimistic about vehicle production. “We would like to exceed the numbers of 2020 and hopefully reach 2019,” he pointed out to this newspaper. Optimism has been fading. The association now believes that production this year will close below that of 2020 and that it will not recover until 2024.
The shortage of microchips, also known as semiconductors, is proving to be a tough bone to resolve. During the pandemic, when demand for vehicles plummeted due to mobility restrictions, microchip manufacturers focused on the computer and electronic device sector, booming for telecommuting. When it reopened, the automotive industry was faced with a lack of supply of semiconductors in the market. A mess with no immediate exit.
“It is an issue that does not have a short-term solution. There is already progress, but this is not a matter of a week or a month. It will be happening little by little ”, said this Monday at a press conference the general director of AMIA, Fausto Cuevas. Economist José Luis de la Cruz sees a structural change. “The semiconductor sector has moved towards those products that are of higher added value. The automaker has been relegated and fixing it is not easy. The investments for the installation of new chip factories will take between one and two years, “he says.
Beyond microchips
It is not the only black cloud. The Government of Joe Biden has announced a program of tax incentives in the US for the purchase of electric cars as part of its billionaire outlay in the face of the economic crisis of the coronavirus. Of the $ 12,500 that a US buyer will be able to receive, 4,500 will be paid only if the vehicles are assembled in US factories with collective bargaining agreements and another $ 500 if they use batteries with at least 50% domestic components.
The initiative, pending approval in the Senate, has set off alarms on the other side of the border. So far this year, Mexico has allocated 68% of its automobile production to its neighbor to the north. The incentive would place Mexican exports, the vast majority of which are combustion engines, at a disadvantage compared to US vehicles. In addition, it can scare away investment in electric cars in Mexico, a small but fledgling sector. Ford began manufacturing a model in the Latin American country last year and General Motors plans to open a production line in the state of Coahuila by 2023, according to AMIA.
Swords raised. The Mexican government considers that the proposal violates the T-MEC, the North American free trade agreement, and has threatened to retaliate and bring the conflict before the World Trade Organization (WTO), a process that can take years. The automotive industry has supported that position on Monday, although it has indicated the risks of an escalation. “It seems to us that the government’s position has been adequate,” said Fausto Cuevas. “I could establish tariffs, but I don’t think that is the solution. It would lead us to a trade war that does not benefit the regional integration of the industry, which is what we are looking for ”.
The other policy that darkens the future of the sector is domestic. The constitutional energy reform initiative promoted by President Andrés Manuel López Obrador proposes to cancel the contracts of private power plants, many of them renewable, to supply companies at prices cheaper than those offered by the Federal Electricity Commission (CFE). The automotive industry is one of the beneficiaries of this scheme and its cancellation will cause, according to AMIA, an increase in rates and a loss of competitiveness.
Beyond the impact on the pocketbook, the reform clashes with the commitments of some shipowners to supply themselves with electricity from renewable sources. The president for Mexico of General Motors, Francisco Garza, warned at the end of November that the constitutional proposal hinders the company’s ability to meet the goals. “If the conditions do not exist, Mexico will no longer be a destination for investment, because the conditions will not be stipulated for us to meet our goal of being zero emissions in the long term,” Garza said in a financial forum.
What can Mexico do to retain attractiveness? “The corporate decisions of where the factories are to be installed will be made in Europe, the United States,” says economist José Luis de la Cruz. “What Mexico can do is create the best conditions to attract investment, a fiscal and legal environment … The energy issue is strategic,” he concludes.
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